Academic journal article Innovation: Organization & Management

Using Government Procurement to Help Grow New Science and Technology Companies: Lessons from the US Small Business Innovation Research (SBIR) Programme

Academic journal article Innovation: Organization & Management

Using Government Procurement to Help Grow New Science and Technology Companies: Lessons from the US Small Business Innovation Research (SBIR) Programme

Article excerpt

In a past era, government procurement was a major lever for industry development and innovation - one thinks back to offset programmes, and commitments required under industry licensing schemes. The world has moved on. What might be the role of government procurement in industry development today? And what might we learn from the experience of schemes in other countries?

The Canberra roundtable began with a presentation by David Connell. David was the Chief Executive of TTP Ventures, a Cambridge based venture capital fund specialising in early stage science and technology based ventures. He is also associated with the Centre for Business Research at the University of Cambridge. In the UK David has been campaigning for the introduction of a US style Small Business Innovation Research (SBIR) programme and his recent report on this subject has had a major influence on UK policy thinking. The authoritative report on Innovation in the UK by Lord Sainsbury1, which was released just weeks after this Canberra forum, strongly recommended the adoption of such a scheme.

David Connell's presentation was followed by panel discussion around a variety of Australian perspectives on procurement policy.

USING GOVERNMENT PROCUREMENT TO HELP GROW NEW SCIENCE AND TECHNOLOGY COMPANIES: LESSONS FROM THE US SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAMME

David's presentation fell into two parts. In the first part of his presentation he explained the development challenges facing the growth of new science and technology companies, and the disadvantages UK firms suffered compared to their US counterparts. In particular, and this expanded upon some of the myth-busting about commercialisation which featured at our 2006 Summit, David argued that we have been too narrow in our thinking about the origins of technology innovation and tend to ignore what he terms 'soft companies' built around customer contracts and solving real world customer problems. David then outlined the operation of the US Small Business Innovation Research (SBIR) programme, and the competitive advantage it, and related procurement policies, give to US firms.

'SOFT' AND 'HARD' COMPANIES

First of all I want to talk about the idea of soft and hard companies. This is a particular way of looking at the business models that technology companies can adopt when they start out. When an entrepreneur or a group of entrepreneurs start a technology business there are a whole range of strategies open to them, with different levels of risk and return. Risk in this context has three components. First there is all the uncertainty: can you make the technology work? Is there a market? Will competitors get there first? Secondly, how much is the technology going to cost, and what's the investment going to be? Thirdly, how difficult is it going to be to manage the business as it progresses? (See Figure 1 - Risk and return).

At the bottom of this exhibit, there are consulting businesses. Lots of technologists and scientists find they can start start some kind of consulting business; a business card and a telephone number and you are away. A bit more difficult but more expensive to start is contract research and development. This is where you develop technology for individual customers. It is very easy to start a business of that kind in areas like software but you can also do it in other areas as well, often with relatively little capital investment. A bit further up the spectrum is where you are actually developing and supplying volumes of product. Right at the top you've got speculative product development. This last option is your classic business school model. You have your bright idea, you write your business plan, you raise your money, you develop your product and eventually you sell it to a grateful group of customers.

Down at the bottom are the soft companies; up at the top are the hard companies. The reason the word soft and hard are used is because, at the bottom end of the spectrum, your strategy is very malleable. …

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